As the price of oil plummets to around $50 a barrel, a quarter of global oil and gas companies have admitted they are awarding contracts to suppliers, despite not having any information about their financial standing.
New research shows many large corporations have not put in place basic safeguards to protect themselves from commercial and reputational risks associated with their suppliers. One third of oil and gas firms do not have an anti-bribery and corruption policy for their main suppliers, and one in 10 do not have a health and safety policy for their main contractors.
In addition, when suppliers do provide information, large oil and gas firms admitted they are not validating the details, or auditing suppliers on site to check they are adhering to their own policies.
The survey was commissioned by Achilles – a global supplier information management company which works on behalf of more than 120 large oil and gas companies across the world to manage their supplier information and supply chain risks.
Research was carried out by independent research company IFF, which interviewed 300 supply chain professionals from businesses with more than 250 employees across the USA and Canada, UK, Latin America, Spain and The Nordics. This included 64 oil and gas companies with 250+ employees.
Mike Viator, Global Director for Oil and Gas at Achilles, said: “With unprecedented pressure on margins, the race is on for oil and gas companies to eliminate immediate costs from their supply chains. They can only make smart business decisions using accurate data – but this survey suggests they are missing basic, essential information about their main suppliers – in both immediate and lower sub tiers.
“The research suggests that many oil and gas companies are simply ‘trusting’ that their main suppliers are operating in a safe, cost-effective and responsible way. Aside from the financial pressure, as a safety centric industry, it is unacceptable that one third of buying organisations do not have a health and safety policy for their main suppliers. It is not an ‘optional extra’ for global businesses to operate in a safe way and tackle bribery and corruption; in many countries, these are legal requirements.”
Lack of checks
A third of the sampled oil and gas buyers admitted they do not carry out basic checks – such as internet research or making telephone calls – to validate suppliers’ information relating to anti-bribery and corruption or financial reports. One in five companies does not check health and safety documents.
Further, many oil and gas companies said they did not conduct any visits to supplier sites to check contractors were operating in accordance with statements made in their health and safety, anti-bribery and corruption and financial documents.
In total:
- 48% of oil and gas firms do not check financial reports
- 19% do not check health and safety reports
- 48% do not check anti-bribery and corruption policies
Mike Viator added: “Oil and gas companies have a responsibility to carry out proper due diligence on their suppliers to protect people working on sites, their own reputation and even the investments of shareholders – who trust them to manage risks.
“We believe oil and gas companies are struggling to keep pace with an increasing burden of administration associated with legislation and regulations.”
“Across the world, businesses are spending about $60 billion on managing information about suppliers – yet this survey shows it isn’t working; there are still real gaps in knowledge.”
“It would be up to 10 times more efficient if businesses agreed common standards of suppliers and then worked collaboratively to share the administrative burden of gathering, managing and updating supplier”.